Even law firms feel the strain of today’s economy
Law firms are not immune from the economic woes and financial crises being experienced by the rest of the economy. Other than a few law firms that have dissolved, though, the pain being felt by law firms as institutions is just not that bad. Laying off a few associates, or delaying the start date of recently hired graduates, may be novel for law firms, but is not huge in the grand scope of law firm economics.
Individual partners in Big Law may be feeling some pain, that is if you call "pain" taking home a few dollars less. A 20% decline in equity partners’ compensation when already earning $1,000,000 just doesn’t get much sympathy from many.
The real "hurt" is being felt by lawyers other than "Big Law," the small firms and sole practitioners. These lawyers can ill-afford a large reduction in compensation. They’re not at the top of the pack to begin with … and they generally represent clients in "personal," not "corporate," matters. Personal injury, family disputes, criminal defense and personal debtor claims, among others, tend to pay less to begin with. Couple this with reduction in number of clients and number of matters and slower payments, then you can begin to feel the real pain being felt in the profession.
While few can predict with any real accuracy the change in the economic winds, the demise of law firms is caused more, in my opinion, by poor business judgment of lawyers rather than the change in the winds. Expanding without a safety net, relying on only a few big clients while making capital expenditures relying on the continuity of that revenue, and failing to address assertively a declining realization rate are real reasons, among others, for law firm troubles.
It’s just too easy in our world to blame someone or something else! As Pogo said, "We have met the enemy and he is us." The reasons for law firm problems are generally as a result of poor business practices, plain and simple. Yes, there may be extenuating circumstances, but not such as to tear the firm apart or cause its demise. There is no entitlement … and there is only ourselves to blame. Given these premises, we can move forward to greater success.Tags: Cash Flow - Finances, Management